Air New Zealand Limited

Welcome to the Air New Zealand 2023 Interim Results Call. During the presentation, your phone lines will be placed on listen only until the question and answer session. Please refrain from asking questions until that time. And with that, I will turn the call over to Air New Zealand's General Manager of Corporate Finance, Layla Peters.

Thank you and good morning, everyone. Today's call is being recorded and will be accessible for future playback on our Investor Center website, which you can find at www.airnewzealand.co.nz forward slash Investor Center. Also on the website, you can find our interim results presentation, financial report, and media release. Speaking on the call today will be Chief Executive Officer Greg Foran and Chief Financial Officer Richard Thompson. I'd like to take a moment to remind you that our comments today will include certain forward-looking statements regarding our future expectations, which may differ from actual results. We ask you read through the disclaimer, and in particular, the forward-looking cautionary statement provided on slide two of the presentation. I'll now hand the call over to Greg.

Thank you, Leila, Kia ora, and good morning, everyone, and thanks for joining us on today's call. Before kicking off, I'd like to take a moment to acknowledge the devastating impact that the Auckland floods and Cyclone Gabriel has had on so many New Zealanders over recent weeks, I also want to recognise the outstanding efforts of e-New Zealanders across the business who leapt into action to ensure the safety of our customers and our people. We know disrupts are never convenient, but we have always and will always place safety ahead of all else. While our primary focus has been on getting services back up and running to reconnect the regions and provide options for our customers, we're also supporting impacted communities wherever we can. Following the Auckland floods, we introduced fare flexibility and donated to relief organisations across the city. After Cyclone Gabriel, we deployed special assistant flights carrying communication support, emergency supplies and airport operational staff. Having restored services into both Gisborne and Napier, we have reduced fares for all customers travelling from both these ports to any locations we serve within New Zealand. providing people that need to leave the region the option to do so. I was in Napier over the weekend and it was wonderful to see the support provided by our outstanding people across our airport team and pilots and crew that are based and live in this region. This alongside many other Air New Zealanders from outside the region who've flown in to lend a hand, enabling us to operate back to a full schedule as quickly as possible. Turning to slide four, on behalf of over 10,000 Air New Zealanders, it is very heartening to report our results for the first half of the year. A statutory profit before taxation of $299 million and a net profit after tax of $213 million. It's a result we are proud of, delivered against a backdrop of very strong passenger demand and continued cargo strength, despite a challenging operational environment. It's almost surreal to think that 12 months ago, we were still navigating network-wide pandemic-related travel restrictions. Our domestic network had been substantially reduced following a four-month lockdown for the Auckland region, and our international passenger network was very limited, with only around 10% of pre-COVID capacity up and running. We'd started hiring back operational staff, planning for the eventual opening of borders, despite not knowing what customer demand would look like. And almost exactly a year ago to this day, the country had just heard the government's five-stage plan for reopening New Zealand to the world, which assumed borders would not open fully until October 2022. Fast forward to today, and I couldn't be more pleased with how the team has rallied together to build back at pace our passenger network, and the support operations and infrastructure that go with it. We welcomed over 8 million customers on board our aircraft in the first half of this year, more than double the amount we saw in the prior period. Our cargo business continued to connect New Zealand businesses globally, as we did throughout the entire pandemic. We embarked on the largest hiring program in our history, onboarding and training over 3,000 staff today. a colossal task made even more complex as we navigated a very tight labor market, elevated levels of sickness and COVID outbreaks. We've been busy relaunching routes, including our new direct service to New York and bringing back much needed capacity to meet the strong levels of demand we're observing across all customer segments and regions. Three new domestically configured A321 NEOs have joined our domestic fleet and six Boeing 777-300 aircraft have now returned to help service our international network. We've also been working to extend lease agreements where appropriate on existing aircraft and making tactical changes to the network to deliver an additional 2.7 million seats or an extra 10,000 seats a day for the coming northern summer period. But that is not to say it has all been smooth sailing. And we've learned, just as other airlines have, that restarting is much harder than shutting down. While our recovery is well underway, we know we have more work to do to tackle customer concerns like long wait times at our call centers, on-time arrival and departure of our planes, lost baggage, and getting refunds back in a timely manner. I want to thank customers for bearing with us through these and other challenges. We're very aware that flying is not the pain-free experience it should be, and getting back into shape is a top priority. What I'm most proud of has been our collective ability to look through these short-term challenges and frustrations to see the bigger picture. We have not sat on our hands and focused just on reopening. Good decisions have been made around our network and fleet by simplifying our operations with what and where we fly. Investments made on infrastructure, both digital and physical, with things like flight planning, apps, loyalty, and new engineering hangars. We have rolled out customer-facing improvements with food and beverage, commenced a retrofit program for our planes, and then, of course, we're commencing work around decarbonization in earnest. We liken this to being able to walk and chew gum. Just restarting was never going to be enough. Turning to slide five and what we are currently seeing in terms of customer demand across our domestic and international networks. Booking strength has continued to exceed our expectations, showing resilience in the domestic market and gaining momentum across our international network over the past six months. Domestic demand continues to track closely to pre-COVID levels. The mix of that demand is slightly different with corporate bookings approaching pre-COVID levels. and leisure demand even stronger than it was before the pandemic. International visitors are back traveling, and we've also seen some of that demand contributing to domestic bookings. In addition to booking strength, our forward domestic sales are above pre-COVID levels, reflecting domestic fares that are, on average, about 25% higher and take into account the higher cost base that we are facing into. While we are always closely monitoring customer demand, we have not observed any signs of softening to date. With domestic capacity currently at around 100% of 2019 levels, should we start seeing any significant changes in demand, we have good flexibility to adjust our schedule accordingly. Turning to international bookings, we are pleased to see bookings improve from July and August levels, increasing to about 75% pre-COVID levels as we've brought more capacity back over the past six months, helped by the return of most of our 777-300s from the desert. All markets have seen good demand, with particular strength in the Tasman and North American markets, as capacity remains below pre-COVID levels for now. The big change in recent months has been the strength of bookings in the Asia region, helped by the relaxation of travel restrictions in Japan and most recently China. Also in Asia, we continue to see very good connecting traffic on our Singapore and Hong Kong services. And while it is encouraging to see these continued levels of demand across our network, it has been challenging to scale up at pace. Air New Zealand has not been immune to the operational pressures facing the global aviation ecosystem. across our workforce and that of our suppliers to backlogs with airline manufacturers and beyond, the global supply chain continues to be stretched due to the pace of the rebuild. To date, this has resulted in a constrained supply of aircraft in the support structures that allow them to fly. In turn, has contributed to an ongoing supply and demand imbalance. Regardless, we have challenged ourselves to get as much of our fleet operational and flying as possible. A wet lease to assist with heightened demand and providing more customer surety, knowing that more seats help keep pricing down. And we do appreciate that pricing is high. Everything costs more, and airfares are no different. There are more people flying than there are seats available across all airlines, not just Air New Zealand. In month. we do expect prices to come down a bit as capacity returns, but it's unlikely they'll go back to where they used to be because everything costs more. When I reflect on the last three years, every one of our stakeholder groups has been impacted significantly by the effects COVID-19 has had on our business. From our customers not having to our people who've worked through some of the most complex operating conditions in history, our shareholders who stood with us through a recapitalisation, to our suppliers who've been under immense pressure as systems ramped up, and to our communities who've spent a lot of time being less connected throughout New Zealand. Our objective always is to deliver a balanced scorecard and not favour groups over the longer term. These key stakeholders are fundamental the ongoing success of our airline and with our return to profitability. And we're proud to be able to deliver for these groups. For our customers, we've been focused on new products and services such as new food and in-flight entertainment offerings and providing more capabilities in our app so our customers can be empowered with their travel journey. It means increasing wages and enhancing benefits to ensure we attract and retain top talent. It means ensuring our balance sheet is robust and has flexibility to invest in our strategy to drive increased cash flows for investors. For our suppliers, we're focused on supporting the supply chain and being reasonable with our suppliers as they too struggle to ramp back up. And it means the ability to give back to communities in which we operate, tackle the challenge of decarbonisation and build further on our role in keeping New Zealand connected. A financially sound New Zealand is good for all New Zealanders. We appreciate our responsibility to set the pace on being a world-class provider of services and innovation, knowing that so too does our country. I'll now hand over to Richard to go through the financial results.